Blog : BOARD TALK

The UK Committee of Public Accounts has spoken and everyone should be listening hard.

Yet again we grapple with the terminology on where culpability lies and how we change corporate behaviour. But Britain's PPI mis-selling scandal is a textbook case on what is wrong: when business does not serve consumer and societal interest, veering off on a pure profit tranjectory, it can all go horribly wrong....

and when the regulator is rapped on the knuckles (and then removed) for daring to suggest that the 'burden of proof' should be on senior management, who dares speak out ?

For what is this euphemistic term 'mis-selling' anyway? Selling people things they do not need and do not want, cloaked in a way they do not understand - to make a profit.

A few hard-hitting truths from the Public Accounts Committee on how it can go wrong...(my emphasis):

"Claims management companies have taken up to £5 billion out of compensation that should have gone to consumers. It is straightforward and free for affected consumers to claim compensation through the Ombudsman for mis-sold payment protection insurance. Yet in 2014–15, 80% of complaints to the Ombudsman about PPI were made through claims management companies. In many cases, these companies merely package up payment protection insurance claims, but they typically charge between a quarter and a third of any compensation subsequently paid. The National Audit Office estimates that claims management companies received between £3.8 billion and £5 billion in commission from PPI payments between April 2011 and November 2015. Collectively, the public bodies involved—the Treasury, the Ministry of Justice, the FCA and the Ombudsman—have been too slow in taking responsibility for this situation, and too passive in allowing it to happen."

"The FCA has not done enough to tackle the cultural problems that lie behind mis-selling by financial services firms. The cultures of firms and the nature of their sales incentives have been identified as key factors behind mis-selling. The FCA has taken some action to deal with these root causes, for instance by promoting changes to firms’ incentive structures and better training of financial advisers. The Senior Managers Regime, which the Government is introducing for banks from 2016, aims to get senior people to take greater responsibility for the actions of those they manage.

But the risks of mis-selling remain, for example pensions freedoms reforms are a potential trigger for future mass mis-selling. Middle managers in financial services firms were often promoted on the basis of achieving sales targets, making it hard to embed more customer-focussed approaches. The FCA has withdrawn a planned review of banks’ culture, but has not articulated what culture it expects firms to have. There is no guarantee that any improvements in cultures will stick as the regulatory spotlight moves away."

Nope. There is no guarantee at all.

“Arguably the most significant conclusion of the Committee of Public Accounts’ report is that the industry is still grappling to embed a consumer-centric corporate culture that is appropriately aligned to the interests of retail customers" says Darrell Evans, CEO, The Consulting Consortium. I couldn't agree more.

“To date, the majority of the regulatory focus in respect of culture has been on remuneration and incentive structures but more can, and needs to be done in the areas of product design and distribution. The FCA is likely to place emphasis on consideration of whether firms are creating products that meet identified needs of the target market and whether they are of true value. Essentially, the key to getting culture right is to reduce, and ultimately eradicate, the conflicts of interest that exist between the firm and the end customer adds Mr Evans.

Which leaves very little left to for me to add.

Except that we need to stop talking about 'culture' as if it is 'nebulous' - it isn't: it should be clearly evident in any business plan. In some industries it is easier to see perhaps, than others: explored here in a previous Board Talk post - Tackling The Nitty Gritty On Corporate Culture.

Calling culture 'nebulous' is akin to calling environmental, social and governance (ESG) factors 'woolly' when it comes to decision-making. People can die as a result of those factors - that's pretty stark. See this recently up (by me) on Forbes - The Very Human Reality Of ESG Risk Laid Bare.

We just need to join up the dots a whole lot better - and quicker, before the costs on so many levels spiral out of control. It's part of the essence of any business, and its corporate governnace.